Individual tax returns are due on
for calendar-year individuals.
Apr-15
True or false: Personal nonrefundable credits should be applied to a taxpayer's tax liability before other types of credits. After personal nonrefundable credits, any business credits should be used followed by all personal refundable credits.
True
False
Rationale:
The correct order is as follows: personal nonrefundable credits, business credits, and finally, personal refundable credits.
credit is available for students enrolled in a qualified post-secondary
educational institution during the first four years of their education.
American opportunity
Lifetime Learning
The
credit is a maximum credit of $2,000 per taxpayer, while the
American
opportunity
credit is a maximum credit of $2,500 per qualifying student.
Lifetime
Learning
Which of the following expenses qualify for the American Opportunity Credit? (Check all that apply.)
Tuition
Meal plans
Textbooks
Required fees
Parking fees
Housing
Tuition
Textbooks
Required fees
Self-employed persons pay FICA taxes on the
earnings from their business while employees pay FICA taxes on
self-employment/salary
Arnold has a tax liability of $700. He has a refundable tax credit of $1,000, and his employer withheld $900 in federal income tax from Arnold's pay. What is the amount of Arnold's tax refund?
$1,000 refund
Rationale:
$700 tax due - $1,000 - $900 taxes pa
Correct Answer
$1,200 refund
$700 tax due - $1,000 - $900 taxes paid = $1,200 refund
employees who incur reimbursed business expenses relating to their business expenses
deduct these expenses, while self-employed individuals can deduct expenses relating to their business as
AGI deductions
cannot, for
A tax
reduces a taxpayer's tax liability dollar for dollar. A tax
reduces taxable income, resulting in a tax savings that is dependent on the taxpayer's marginal tax bracket.
credit deductions
Alex and Alecia used the married filing jointly filing status when they prepared their tax return. During the current year, their joint tax liability totaled $9,300. If they were not married and had both filed as single, Alex would have had a $3,900 tax l
Marriage penalty
The
tax is intended to provide basic pension coverage for the retired and disabled, and the
tax helps pay medical costs for qualifying individuals.
social
security medicare
Darcy received $2,000 in qualified dividends this year. She has ordinary income of $20,000. Darcy has no other taxable income. What tax rate will be assessed on the $2,000, since it is a qualified dividend rather than ordinary income?
0%
During the current year, Barry (single taxpayer) has taxable income of $60,000. Of that amount, $10,000 is long-term capital gain. How will Barry calculate the tax on his income?
Use the tax rate schedule to calculate tax on $50,000; multiply the capital
Use the tax rate schedule to calculate tax on $50,000; multiply the capital gain income of $10,000 by 15%; then add the two amounts together.
When calculating a tax liability, the taxpayer will use the tax rate schedule that is determined by which of the following?
Filing status
Which of the following taxpayers can use the tax rate schedule to calculate the tax on all of his or her taxable income without having to perform additional calculations to determine the tax on varying types of income?
Rick earned wages from his employer
Harold received income from a partnership where he works full-time and interest from corporate bonds.
Christina's taxable income is $35,000, Charles' is $50,000, and Chris' is $500,000. Each of these taxpayers additionally earned $1,000 of long term capital gain income in 2019. All of the taxpayers file single. Which of the following answers is correct re
Chris will pay $200 in tax.
Rationale:
Since Chris' taxable income is over $434,550, the preferential capital gains rate is 20%.
Chris has taxable income of $123,000. A portion of this income is from capital gains and should receive preferential tax treatment. List the steps below in the order in which they should occur for Chris to be able to determine his overall tax liability.
Step 1
Split taxable income into the portion taxed at preferential rates versus the portion taxed at ordinary rates.
Step 2
Compute the tax separately on each type of income, using the tax rate schedule on the portion taxed at ordinary rates.
Step 3
Add the tax on the income subject to preferential rates to the tax on the income subject to ordinary rates.
The kiddie tax will NOT apply to a child whose net unearned income is equal to or less than $
2200
Which of the following individuals would NOT be subject to the kiddie tax assuming they have unearned income
A child over age 18, but under age 24, at year end and a full time student whose earned income does not exceed half of her support
Rationale:
The
A child who is 19 at year end, a part time student, and claimed as a dependent on his parents' tax return
Which of the following types of income may be taxed at rates higher than the tax rate schedule would dictate?
Qualified dividend income
Unearned income when the taxpayer is a dependent child
Long-term capital gain income
Partnership income when the taxpay
Unearned income when the taxpayer is a dependent child
How does the kiddie tax reduce the incentive to shift income from parents to children?
It mandates that children must pay tax on most unearned income at the higher rate used by trusts and estates.
It mandates that children must pay tax on income at the hi
It mandates that children must pay tax on most unearned income at the higher rate used by trusts and estates.
The
tax was implemented to make sure that taxpayers who were generating income pay some income tax, rather than disproportionately benefiting from tax-advantaged items.
alternative
minimum
For tax calculation purposes, the kiddie tax base is the child's net unearned income. The net unearned income is defined as:
The lesser of (1) the child's gross unearned income minus $2,200 or (2) the child's taxable income
The greater of (1) the child's
The lesser of (1) the child's gross unearned income minus $2,200 or (2) the child's taxable income
Which of the following individuals would NOT be subject to the kiddie tax?
Tyler is an 18 year old, part time student who does NOT provide half of his own support. He has $3,000 in interest income.
Rationale:
Tyler is subject to the kiddie tax because he
Shelby is a 17 year old, full time student who does NOT provide half of her own support. She has $3,000 in babysitting income.
Charlie's regular tax liability is $43,695. His tentative minimum tax is $58,304. He doesn't have any tax credits. What is the amount of Charlie's alternative minimum tax (AMT) and how much will he actually pay in tax for the current year?
AMT: $14,609; T
$58,304-$43,695=$14,609 Tax: $58,304
Which of the following amounts is NOT added back to regular taxable income to arrive at alternative minimum taxable income?
Standard deduction
State income taxes
Capital losses
Tax-exempt income from private activity bonds
Capital losses
Which of the following tax provisions was implemented to insure that the taxpayer pays some level of income tax, despite the disproportionate use of tax preference items to reduce regular taxable income.
Earned income credit
Tax on net investment income
K
Alternative minimum tax
Choose the deductions that reduce both regular taxable income and AMTI. (Check all that apply.)
Real property taxes paid on principle residence
State income tax
Home equity interest - loan used to substantially improve the house
Gambling losses
Charitable
Home equity interest - loan used to substantially improve the house
Gambling losses
Charitable contributions
Casualty and theft losses
How is the amount of the alternative minimum tax determined?
The amount of AMT is the AMT base multiplied by the AMT.
Rationale:
This is the tentative tax. It must be compared to the regular tax. The excess of this amount over the regular tax is the AMT.
The amount of AMT is the excess of the AMT base multiplied by the AMT rate over the regular tax liability.
The starting point for determining the alternative minimum tax is:
regular tax liability
Rationale:
The starting point is regular taxable income. From this number, several adjustments are made, and the AMT exemption amount is deducted. The result is AMTI
regular taxable income
To help ensure that low-income taxpayers are NOT required to pay the alternative minimum tax, AMTI is reduced by a(n)
amount to determine the alternative minimum tax base.
exemption
When is the standard deduction NOT added back to regular taxable income to arrive at alternative minimum taxable income?
The standard deduction is never added back to regular taxable income to arrive at AMTI.
The standard deduction is not added back when
The standard deduction is not added back when the taxpayer deducted itemized deductions rather than the standard deduction.
A taxpayer is subject to the
when the tax on its base is higher than his regular tax liability.
alternative minimum tax,
Carol's AMT base is $240,000. Of this amount, $35,000 represents long-term capital gain income from investments. Carol is in the 28% marginal tax bracket for regular tax. Calculate the tentative tax resulting from AMT calculations.
...
The AMT is calculated by multiplying the first $194,800 of the AMT base by
% and multiplying the AMT base in excess of $194,800 by
%. Long-term capital gains are taxed at
rates for alternative minimum tax.
26
28
preferential
True or false: The AMT exemption amount phases out for higher income taxpayers resulting in a higher alternative minimum tax base for those individuals.
True
False
True
Rationale:
The exemption amount protects lower income taxpayers from paying the AMT, but the exemption is phased out for higher income taxpayers.
False
Rationale:
The exemption amount protects lower income taxpayers from paying the AMT, but the exemption is phased out for higher income taxpayers.
Select all that apply
Choose the types of income that qualify as net investment income for the purposes of assessing the Net Investment Income tax. (Check all that apply.)
Excluded gain on sale of a personal residence
Self-employment income
Income from a
Income from a trade or business that is a passive activity
Long-term capital gain
Dividend income
Interest income
For certain taxpayers, a tax of
% may be assessed on net investment income.
3.8
Carol's AMT base is $240,000. Of this amount, $35,000 represents long-term capital gain income from investments. Carol is in the 28% marginal tax bracket for regular tax. Calculate the tentative tax resulting from AMT calculations.
$62,400
Rationale:
(194
$59,162
Rationale:
(194,800 x .26) = 50,648 (10,200 x.32) = 3,264 (35,000 x .15) = 5,250 Tentative tax = $59,162
Carol's LTCG is taxed at 15% because all single taxpayers with a MTR of 32% are in the 15% LTCG bracket.
Choose the following statement that is INCORRECT regarding Social Security and Medicare taxes?
The Social Security tax rate is 12.4% of wages up to a maximum wage amount.
Rationale:
This statement is true.
Single taxpayers will pay an increased rate of Me
Low-income taxpayers are exempt from paying Social Security and Medicare taxes on their wages.
How are the employees' portions of FICA tax liabilities paid?
Employers withhold the amounts from the employees' paychecks.
Employees must make estimated payments each quarter.
Rationale:
The employer withholds the tax from the employee's salary or wages.
Employers withhold the amounts from the employees' paychecks.
Which one of the following types of income is NOT part of net investment income for purposes of calculating the Net Investment Income tax?
Long-term capital gain income
Wage income
Interest income
Rationale:
Interest income is considered in net investment
Wage income
For years after 2012, a 3.8% tax is imposed on the
of certain taxpayers when modified adjusted gross income exceeds a certain threshold.
net
investment
income
Sole proprietors and independent contractors pay
taxes on their net profit which represents both the employee and employer component of FICA and Medicare.
self-employment
Match the tax rate with the corresponding type of tax.
12.4%
Social Security Tax rate
2.9%
Medicare Tax Rate on the tax base up to $200,000 (for single taxpayers).
3.8%
Medicare Tax Rate on the tax base above $200,000 (for single taxpayers).
15%
This rate
...
Employees pay
taxes on their salary, wages, and other compensation at a current rate of 6.2%.
social
security
Which of the following statements is correct regarding the deductibility of self-employment taxes?
Taxpayers are allowed to deduct the employee portion of their self-employment taxes FROM AGI.
Taxpayers are allowed to deduct the employee portion of their
Correct Answer
Taxpayers are allowed to deduct the
employer
portion of their self-employment taxes FOR AGI.
By which of the following ways can self-employed taxpayers, such as independent contractors, always deduct their business expenses?
For AGI against business income
From AGI against all forms of income
For AGI against all forms of income
From AGI against b
For AGI against business income
Self-employed taxpayers may deduct the employer portion of their self-employment taxes
(for/from) AGI.
for
Which of the following factors suggests that a person is an independent contractor rather than an employee? (Check all that apply.)
Provides her own tools
Work is supervised by the firm
Could realize a profit or loss from the activities
Sets her own worki
Correct Answer
Provides her own tools
Could realize a profit or loss from the activities
Sets her own working hours
Denis and Debbie are married and file jointly. They have two children that qualify for the child tax credit. Their AGI for the current year is $422,000. What is the amount of their child tax credit?
1st --> 2 children X $2,000 = $4,000.
2nd --> then take care of Phase out
($422,000 - $400,000)/1,000 = 22
3rd --> 22X$50 = $1,100
4th --> $4,000 - $1,100 = $2,900
What is the amount of the child tax credit?
A maximum of $2,000 for each qualifying child
A maximum of $2,000 per tax return
Rationale:
The credit is per child, not per return.
A maximum of $1,000 per qualifying child
Rationale:
The credit is currently $2
A maximum of $2,000 for each qualifying child
Shonda is currently in the 24 percent tax bracket. She reports a $400 tax credit. How will this credit affect her tax liability?
Her tax liability will increase by $400.
Rationale:
A credit reduces the tax liability dollar for dollar.
Her tax liability wi
Her tax liability will decrease by $400.
Shonda is currently in the 24% tax bracket. She reports a $400 tax credit. How will this credit affect her tax liability
Her tax liability will decrease by $400
12.4% - Social security tax rate
2.9% - medicare tax rate on the tax base up to $200,000 (for
Her tax liability will decrease by $400
The _____ and _______ _______ credit helps taxpayers pay the cost of providing care for dependents, so that taxpayers can work
...
Arnold has a tax liability of $700. He has a nonrefundable tax credit of $1,000, and his employer withheld $900 in federal income tax from Arnold's pay. What is the amount of Arnold's tax refund?
$1,000 refund
Rationale:
The credit will offset the tax lia
Correct Answer
$900 refund
In order to qualify for the child tax credit, the child must meet the requirements to be a(n) ______ _______ and be under age _________ at the end of the year
...
The following statement is INCORRECT regarding the child and dependent care credit?
The minimum dependent care credit is 20% of qualifying expenditures.
The credit completely phases out for high income taxpayers.
Expenditures for care within the home can
...
Stacy is unmarried and has three children that qualify for the child tax credit. Their AGI for the current year is $97,000. What is the amount of her child tax credit?
$6,000
Which of the following factors suggests that a person is an independent contractor rather than an employee?
...
Which of the following individuals is eligible to receive (or qualify their parents to receive) the American Opportunity Credit?
...
Which one of the following credits is a tax subsidy designed to help taxpayers provide care for their dependents, so that they can work or look for work?
...
The following expenses will qualify for the American Opportunity Credit in the current year?
1) Tuition for a term beginning in January is paid in December of the current year
2) Textbooks and required lab fees are paid in the current year
Tim and Sandy have a ten year old daughter. During the current year, they spent $2000 on childcare expenses at a daycare center and paid $1500 in childcare expenses to Sandy's sister. Their child and dependent care credit will be calculated based on a max
$3000. A relative who is a caregiver will qualify as long as the relative is not a dependent relative or child of the taxpayer.
What qualifies for the Lifetime Learning Credit?
Tuition for graduate courses
Tuition for full time enrollment at a university
Fees for continuing professional education required for job.
Baxter and bailey use the married filing jointly filing status on their tax return. They incurred $4000 in undergraduate tuition for Bailey to finish her degree. She was in her fifth year and graduated in May. Baxter started graduate school i August. They
...
American Opportunity Credit (AOC)
American Opportunity Credit
Which of the following is NOT a criteria for the American Opportunity credit?
The individual must be a full-time student.
The student must be in the first four years of postsecondary education.
The student must be enrolled in a qualified postsecondary edu
Correct Answer
The individual must be a full time student.
Which one of the following statements is CORRECT regarding the American opportunity and lifetime learning credits?
Both credits phase out for higher income taxpayers.
The AOC is taken on a per taxpayer basis and the LLC is taken on a per student basis.
Ra
Both credits phase out for higher income taxpayers.
Which of the following statements are true regarding the earned income credit? (Check all that apply.)
Individuals with at least one qualifying child are eligible for the credit regardless of age.
Individuals who are dependents of other taxpayers are not
Individuals with at least one qualifying child are eligible for the credit regardless of age.
Individuals who are dependents of other taxpayers are not eligible for the credit.
The credit is designed to offset the effect of employment taxes on compensation paid to low-income taxpayers.
The lifetime learning credit is available for any course of instruction and is NOT limited to courses taken at postsecondary educational institutions.
yes
Allie's only source of income for the year is wages from a part-time job of $9,000. She is not married and has one dependent child. Allie has no tax liability and she had no income tax withheld by her employer. After applying the earned income credit, wha
...
The lifetime learning credit is equal to ___% of eligible expenses up to an annual maximum of ___________ of eligible expenses in one year
...
How are business tax credits, except for the foreign tax credit, handled when they exceed the taxpayer's gross tax for the year?
...
Which of the following is NOT a criteria for meeting the eligibility requirements for the earned income credit for an individual with no children?
Can be claimed as a dependent for another taxpayer
Over age 25
Lived in the U.S. for at least half the year
Can be claimed as a dependent for another taxpayer
Steve's only source of income for the year is a salary of $24,000. He is not married and has one dependent child who is eligible for the child tax credit. Steve's tax liability is $570 before any credits or prepayments are applied. He had $500 withheld fr
$2,662 refund
3461 - [(24,000-18,660)*.1598] = 2607-(570-500) = 2678
Which of the following are acceptable methods for treating income taxes paid to foreign countries? (Check all that apply)
a.) Include foreign income in gross income and claim a foreign tax credit for the foreign taxes paid
b.) Include the foreign earned i
...
Business tax credits are _____________ credits, but may be carried back one year or forward for ___________ years.
a.) refundable; twenty
b.) nonrefundable; five
c.) nonrefundable; twenty
d.) refundable; five
c.) nonrefundable; twenty
Which of the following choices is NOT characteristic of the foreign tax credit?
The credit is refundable to the taxpayer if it is in excess of the tax liability after deducting other credits.
Rationale:
The credit is nonrefundable.
The credit may be reduc
Answer
The credit is refundable to the taxpayer if it is in excess of the tax liability after deducting other credits.
Bruce is a part-time student (more than half time) enrolled at a qualified postsecondary educational institution. He files as a single taxpayer and cannot be claimed as a dependent on any other tax return. He paid $3,000 in qualified education expenses du
...
List the order in which taxpayers with multiple credits should apply them against their gross tax.
Personal nonrefundable credits
Business credits
Refundable credit
Which one of the following statements is CORRECT regarding the American opportunity and lifetime learning credits?
A taxpayer can take both credits for the same student if qualifying expenses are sufficient.
Both credits phase out for higher income taxpay
Both credits phase out for higher income taxpayers.
Which of the following is NOT an acceptable method for treating income taxes paid to foreign countries?
Include the foreign earned income in gross income and deduct the foreign earned income for AGI.
Include the foreign income in gross income and deduct t
Include the foreign earned income in gross income and deduct the foreign earned income for AGI.
...
Underpayment penalty
n order to meet the safe harbor provisions, a taxpayer, with an adjusted gross income of $120,000 in the prior year, must have withholdings and estimated tax payments that equal or exceed which of the following measures? (Check all that apply.)
90% of the
1) 100% of their previous year tax liability
2) 90% of their current tax liability
The ____ _____ credit is claimed by taxpayers for the income taxes they pay in other countries. This credit may be restricted if the effective tax rate on the international earnings is _____ than the effective U.S. tax rate on the international earnings
...
Other than the safe harbor provisions, what other tax due circumstances will prevent a taxpayer from incurring an underpayment penalty
1) The taxpayer's tax payable after subtracting withheld taxes is less than $1,000
2) The taxpayer had no tax liability in the previous year
Other than the safe harbor provisions, what other tax due circumstances will prevent a taxpayer from incurring an underpayment payment penalty?
The taxpayer files the tax return on or before April 15, regardless of the amount due.
The taxpayer's tax payab
Correct Answer
The taxpayer had no tax liability in the previous year.
The taxpayer's tax payable after subtracting withheld taxes is less than $1,000.
The basis for requiring employers to withhold taxes from employees' pay and requiring periodic estimated tax payments from taxpayers with income not subject to withholding is known as the:
revenue recognition basis.
cash basis.
wherewithal-to-pay basis.
p
Correct Answer
pay-as-you-go basis.
How can taxpayers protect themselves from incurring an underpayment penalty?
When income is unpredictable, the tax return should be filed by the end of the year.
Taxpayers should meet one of the safe harbor provisions for estimated tax payment requirement
Correct Answer
Taxpayers should meet one of the safe harbor provisions for estimated tax payment requirements.
Individual taxpayers are required to file a tax return only if their gross income exceeds certain thresholds which vary based on (select all that apply)
Amount of earned income
Filing status
Age
Prior year tax liability
Correct Answer
Filing status
Age
True or false: There is no underpayment penalty assessed if the taxpayer chooses to pay nothing throughout the year, but sends in just enough of an estimated payment at year-end to meet the safe harbor rules.
Falce
The underpayment is calculated and assessed for each quarter the taxpayer is underpaid_
Taxpayers with a(n) ______ tax liability in the previous year or whose tax payable after subtracting their withholding amounts is less than ____ are NOT subject to underpayment penalties
...
The income tax is paid on a pay-as-you-go basis through _____ or ______ tax payments
Withholdings; estimated
How can taxpayers protect themselves from incurring an underpayment penalty?
As long as the tax return is filed and taxes are paid by the due date, there is no underpayment penalty.
Rationale:
Taxpayers should meet one of the safe harbor provisions.
When
Taxpayers should meet one of the safe harbor provisions for estimated tax payment requirements.
When is an individual required to file a tax return?
Individuals must file a tax return when they have income tax withheld from their wages.
Rationale:
Filing requirements are based on gross income, not tax withholdings.
Individuals must file a tax return
Individuals must file a tax return when their gross income exceeds certain amounts based on their filing status and age.
The late filing penalty equals ______ of the amount of tax owed for each month that the tax return is late, with a maximum penalty of ______
...
True or false: A six-month extension will allow the taxpayer to extend the tax payment date without penalty.
False
Rationale:
The extension will allow extra time for filing the return, but does not extend the time for payment.
Individual taxpayers are required to file a tax return only if their gross income exceeds certain thresholds which vary based on (select all that apply)
Amount of earned income
Prior year tax liability
Age
Filing status
Age
Filing status
What type of penalty will be assessed on a taxpayer who pays her taxes due after the due date of the return?
fraudulent filing
gross income
late payment
late filing
late payment
Taxpayers who are unable to file by the due date can request an automatic ______ ______ extension
...